Standard Chartered Hit by Profit Fall, Shareholder Protest

Published 2:58 AM ET Thu, 9 May 2013
Reuters

Sang Tan

Standard Chartered faced a protest from over 20 percent of shareholders over its board structure on Wednesday and warned it could miss this year's revenue target after higher bad debts and falling interest rates hit first-quarter earnings.

Shares in the Asia-focused bank, one of the most consistent performers during the financial crisis, fell over 4 percent.

More than 22 percent of the London-based bank's shareholders abstained or voted against the re-election of four directors at an annual meeting, including probably its largest investor, Singapore state investor Temasek. Almost 13 percent of shareholders also failed to back the bank's pay policy.

Temasek, which owns an 18 percent stake, last year abstained on the re-election of some directors, in part because it wants fewer executives on the board. The investor was considering abstaining again this year, sources familiar with the matter told Reuters before the shareholder meeting. It could not immediately be reached for comment after the vote.

Standard Chartered Chairman John Peace said he had discussed governance with Temasek, and said his bank - which has six executives on its board of 19 people - had a structure that reflected best UK corporate practice.

"They believe in a different model. They expressed a different philosophy to us and I respect that," Peace said.

Standard Chartered said that, despite a weak March, it was still on course to achieve an 11th consecutive year of record profits, driven by strong Asian markets, but it would ease back on hiring to rein in growing wage costs.

The profitability of banks in Asia has been squeezed by ultra-easy monetary policy in the West, which has created a flood of cheap money that has pressured margins for banks competing to lend to fast-growing emerging markets.

Operating profit at both Standard Chartered's consumer and investment banking arms fell by about 5 percent in the first three months of 2013.

Revenues in the first quarter were slightly higher than in the first quarter of 2012 and Finance Director Richard Meddings said profit margins had stabilized.

But he said the impact of Western monetary policy on Asia was "the key anxiety" that could affect revenues, which Standard Chartered aims to increase by 10 percent a year.

"At this point, we'd prefer to wait to see how May and June land before we give that guidance (of 10 percent revenue growth)," Meddings told reporters on a conference call. "Last year we produced revenue growth of 8 percent and it may be that we're more likely to be at that level."

The bank, which makes about four-fifths of its operating profit in Asia and the Middle East, said it was comfortable with analyst forecasts for pretax profit of $8.2 billion this year, up 18 percent from 2012.

It said its performance had weakened in South Korea and in Singapore. South Korea's government has overhauled personal debt restructuring processes as part of a wider social welfare programme, which includes more forgiveness on troubled long-term loans, and Standard Chartered said its consumer bad debts there had increased by more than 10 percent, more than expected.

Staff Costs Grow

Its shares closed down 4.4 percent at 16.25 pounds, the biggest daily drop since they slumped in August after charges the bank violated U.S. sanctions against Iran. That ended in a $667 million settlement with U.S. authorities.

"The Q1 trading statement is the first one in a long time in which Standard Chartered is down in operating profit comparisons on a year-on-year basis, both in the wholesale bank and the consumer bank," said Bernstein analyst Chirantan Barua.

Costs rose on the year, including a "high single-digit" percentage rise in staff costs after the addition of 560 staff in the quarter and wage inflation, the bank said. It does not issue full quarterly numbers and releases earnings twice a year.

Standard Chartered has previously said it could hire about 2,000 staff this year.

"We will still be hiring, the business still has good growth, but we will be pacing the rate of that hiring more acutely until we are more certain of the income run rate," Meddings said.

Hong Kong was once again Standard Chartered's standout market in the first quarter, with income growing more than 10 percent, mirroring a strong performance there reported by rival HSBC <HSBA.L> on Tuesday.